As a racer and attorney, I am frequently asked by my fellow racers to provide legal advice about car transactions they are contemplating, or about a deal that is now having problems. In recent years, the contracts for vintage, collectible, race and exotic cars have certainly become more complex, as the risks and liability issues have increased for both buyers and sellers.
In this first article, we are focusing on certain aspects of transactions between the US and either England or Europe. The considerations to involve counsel involve similar concerns in American domestic transactions:
Does this transaction involve money I cannot afford to lose? As in most transactions, the numbers of buyers and sellers failing to identify the range of risks and problems in particular deals and then encountering adverse claims, seem to increase in direct proportion to the price of the vehicle. For example, in a recent case, a racecar was sold from the US to Europe. The new owner and seller put together their purchase contract but did not effectively deal with adverse American title claims that might surface after the closing. Sure enough, out of the woodwork came a very ancient claim from a time when the claimant loaned money on the car and it was worth maybe 5% of its current sale price. The American courts refused to cut off the claimant on motions, and, to add insult to injury, the claimant convinced international law enforcement to seize the car in Europe on a stolen car report. The claim, which demanded return of the car to the claimant, tied the car up for two years and cost the buyer and seller a lot of money before eventually being settled. In this instance, while American courts were open to such litigation and provided fairly easy access, European courts would, in general, have proved a much more difficult forum for this claimant.
Am I up to date on the relevant law controlling my transaction, and have I built that current law into each part of my deal? We all know about inspections and about doing our homework to verify provenance, condition, history, liens, ownership, etc. However, the same procedures and successful contracts we used a few years ago can leave us exposed today.
In a recent example of a Europe-to-US transaction, a buyer on a simple contract he drafted engaged an agent to find a particular car in Europe and bring the car into the US for a gross price which included purchase price, costs, duties, etc. Whatever remained after costs and expenses was to be the agent’s commission. The agent undertook the assignment, found the car, made the deal, and imported the car to the US. This importation, however, included a declaration to US Customs that stated a very false low value. US Customs eventually came after the buyer, who was an innocent sitting duck, based upon his contract and lack of documentation with his agent. The car was seized and held by the government for four years. Finally, after extended hearings, threats of forfeiture, extended investigations, payment of fines, and payment of substantial attorney’s fees, the case settled, and the car was finally returned to the buyer. Tempting customs investigators with an interesting car in a questionable valuation is a definite “no-no.” After all, if you had the badge, which would you rather seize and investigate—interesting cars or a shipment of canned fish?
Am I feeling impetuous, emotional, or victimized by “red mist” in the midst of this deal? The same impatience and bad judgment that can overcome a racer and cause problems on track, can also affect our car deals. Some of the best business people who are consistent titans in their day-to-day business dealings can also, amazingly, do some of the silliest things in making expensive car deals. Those mistakes or oversights can come back to embarrass them and to cost money. A few years ago, a very successful and prominent car collector became impatient with the pace at which a deal was being negotiated. Fearful that another buyer might ace him out of a very rare racecar in Europe, he fired his advisors, took matters into his own hands, and then, using a contract made by his sellers in Europe, which he did not fully analyze, he proceeded to make his deal in a jurisdiction which had laws he really did not understand. Sellers’ agents, who from the outset were charming and reassuring, were completely delighted to assist in loading sealed crates onto buyer’s hired truck. You have probably already guessed that the eventual unpacking ceremony in the buyer’s office was tearful, as each crate contained rubbish, not his prized car. The deal, as written, did not provide any meaningful protection or recourse, and more troubling, the sellers had not been properly investigated. The deal did not provide adequate protections under applicable law in the European country in question, and the sellers became phantoms as far as any meaningful recourse.
Am I afraid that involving an attorney will kill the deal? This is sometimes realistic if you choose an attorney who is not familiar with racecars and the “car-culture.” Consider, however, that major dealers, museums, and private collectors worldwide are some of the most sophisticated people in the market, and more and more have counsel crafting the transaction documents and advising them. In a recent transaction, for example, a car museum in the US received a car from Europe for display. Delighted with the prospect of the car becoming part of the museum’s collection, museum management did not properly analyze the true meaning and consequences of the terms and conditions of the contract imposed by the car’s owners. In the end, the museum had to pay substantial monies to restore the car and damages for violating the contract. After that experience, this same museum developed, in conjunction with counsel, a range of contracts it then imposed on its transactions in order to protect its interests and avoid liability.
Finally, am I proceeding to just do the deal as best I can, and then sort out any problem later? This approach can work, but the better and more cost-effective approach is front end problem identification, prevention, and risk reduction before the deal is made. How the problems are dealt with is somewhat different if you are in England or the US. The frequent comment (and probably gross generalization) is that English law seems to favor attempting to sort out certain problems that may arise after the fact, while US law moves comparatively more quickly into litigation as a forum for this same type of problem resolution. We are advised by our friends in England that this tradition is changing and it is, in their view, becoming more like the US, there still appears to be a custom of trying to work out some types of problems between buyers and sellers on car deals and reserving litigation as a last resort. One of the reasons offered for the English system’s disincentive to sue or be sued is that the system routinely imposes on the losing party not only the results of the loss, but also the fees and costs incurred by the prevailing party. This system certainly makes potential litigants consider the merits of their case.
The goal of law, as applied in both international and domestic transactions, is really to help the client avoid the negative and to let the emotional moments associated with great cars be positive – like enjoying the acquisition, the sale, the ownership, or, on the best of occasions, that brilliant performance on the track.
Our thanks to Howard Matloff, whose law offices are in San Diego, California, for the above article. You can learn more by visiting his website at EXOTICCARLAW.COM. We knew he specialized in car transactions worldwide, and now we learn from the International SuperSports Cup organizers in Europe that he is a pretty fair driver as well. It seems he finished in the top five overall for the season – competing in his 1970 Martin BM8-1, 2-liter car (pictured top) against the big Can-Am cars! The usual legal disclaimer should be noted that this article is general in nature and is neither offered for, nor intended as, legal advice where an attorney should be consulted about a particular transaction.
